ECOSCOC
Topic A: Economic crisis among developed countries
by Marcela Macías
The world economy is caught up in the most severe economic and financial crisis since the Great
Depression, which threatens the ability of countries to confront issues such as poverty, hunger and
disease. As the crisis deepens, the impact on developing countries is rapidly worsening,
particularly in terms of rising unemployment and a widening external financing gap. A sharp
decline in international trade flows, a collapse in commodity prices, a drop in international
tourism, and a moderation in remittances have contributed to a significant deterioration in the
current account balances of many developing countries. Prospects for an early recovery have
faded, forcing nations to prepare for a prolonged downturn in trade, investment and employment.
A financial crisis like the one we are facing right now is the result of a disorderly contraction in
money supply and wealth in an economy. It is also known as a credit crunch. It happens when
participants in an economy lose confidence in having loans repaid by debtors. This causes lenders
to limit further loans as well as recall existing loans. The financial/banking system relies on credit
creation as a result of debtors spending the money which in turn is 'banked' and loaned to other
debtors. As a result a relative small contraction in lending can lead to a dramatic contraction in
money supply.
The global financial crisis is already causing a considerable slowdown in most developed countries.
Major declines in GDP at annual rates for the first quarter of 2009 were evident for Germany,
Japan, UK, Mexico, and US. Stock markets are down more than 40% from their recent highs.
Investment banks have collapsed, rescue packages are drawn up involving more than a trillion US
dollars, and interest rates have been cut around the world in what looks like a coordinated
response. Leading indicators of global economic activity, such as shipping rates, are declining at
alarming rates, affecting both developed and developing countries.
The financial crisis that has spread around the world through two main mechanisms:
First, foreign financial institutions bought a lot of the mortgage‐backed securities issued in the US
and have experienced losses just like the Wall Street firms.
Second, there has been a huge drop in world trade. But the fall in trade has not just been because
of the collapse of US consumer spending. Once the a downturn started, the overinvestment in
Eastern Europe, the Mid East and parts of Asia was shortened, bringing on very sharp drop in
capital goods purchases worldwide. The large capital goods producing countries such as Germany,
Japan and the United States have all been affected.
Since this crisis began there was widespread concern as of today Member States have mobilized
resources on a massive scale, including $18 trillion (almost 30 per cent of world gross product) to
recapitalize banks, nationalize financial institutions and provide guarantees on bank deposits and
other financial assets; and fiscal stimulus plans that by April 2009 amounted to $2.7 trillion, to be
spent over 2009–2011. They have also acknowledged that the financial crisis reflects inadequacies
of current financial architecture, and that there’s a need for deep structural reforms to better
reflect the new conditions and challenges of the 21st century.
In a globalized economy, interventions in financial markets call for cooperation and coordination
of national institutions, and for specialized institutions with a multilateral mandate to oversee
national action. The crisis has made it all too clear that globalization of trade and finance advises
for global cooperation and global regulation. It is indispensable to stabilize exchange rates by
direct and coordinated government intervention, supported by multilateral oversight, instead of
letting the market find the bottom line. But resolving this crisis and avoiding its recurrence has
implications beyond the realm of banking and financial regulation, going to the heart of the
question of how to revive and extend multilateralism in a globalizing world.
References:
Pastorel, Macoveiciuc PhD. (2009). Credit Crunch. Retrieved August 10, 2009 from
http://www.asecib.ase.ro/simpozion/2009/full_papers/pdf/33_Macoveiciuc_Credit%20Crunch_ro
.pdf
Dunaway, Steven (2009). Global Imbalances and the Financial Crisis. Retrieved August 10, 2009
from http://www.cfr.org/content/publications/attachments/Global_Imbalances_CSR44.pdf
te Velde, Dirk Willem (2009). The global financial crisis and developing countries. Retrieved August
10, 2009 from http://www.odi.org.uk/resources/download/2462.pdf
United Nations Department of Economic and Social Affairs (2009). Financial and economic crisis.
Retrieved August 10, 2009 from http://www.un.org/esa/desa/financialcrisis/
UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT (2009). The Global Economic
Crisis: Systemic Failures and Multilateral Remedies. Retrieved August 10, 2009 from
http://www.unctad.org/en/docs/gds20091_en.pdf
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ECOSCOC
Topic A: Economic crisis among developed countries
by Marcela Macías
The world economy is caught up in the most severe economic and financial crisis since the Great
Depression, which threatens the ability of countries to confront issues such as poverty, hunger and
disease. As the crisis deepens, the impact on developing countries is rapidly worsening,
particularly in terms of rising unemployment and a widening external financing gap. A sharp
decline in international trade flows, a collapse in commodity prices, a drop in international
tourism, and a moderation in remittances have contributed to a significant deterioration in the
current account balances of many developing countries. Prospects for an early recovery have
faded, forcing nations to prepare for a prolonged downturn in trade, investment and employment.
A financial crisis like the one we are facing right now is the result of a disorderly contraction in
money supply and wealth in an economy. It is also known as a credit crunch. It happens when
participants in an economy lose confidence in having loans repaid by debtors. This causes lenders
to limit further loans as well as recall existing loans. The financial/banking system relies on credit
creation as a result of debtors spending the money which in turn is 'banked' and loaned to other
debtors. As a result a relative small contraction in lending can lead to a dramatic contraction in
money supply.
The global financial crisis is already causing a considerable slowdown in most developed countries.
Major declines in GDP at annual rates for the first quarter of 2009 were evident for Germany,
Japan, UK, Mexico, and US. Stock markets are down more than 40% from their recent highs.
Investment banks have collapsed, rescue packages are drawn up involving more than a trillion US
dollars, and interest rates have been cut around the world in what looks like a coordinated
response. Leading indicators of global economic activity, such as shipping rates, are declining at
alarming rates, affecting both developed and developing countries.
The financial crisis that has spread around the world through two main mechanisms:
First, foreign financial institutions bought a lot of the mortgage‐backed securities issued in the US
and have experienced losses just like the Wall Street firms.
Second, there has been a huge drop in world trade. But the fall in trade has not just been because
of the collapse of US consumer spending. Once the a downturn started, the overinvestment in
Eastern Europe, the Mid East and parts of Asia was shortened, bringing on very sharp drop in
capital goods purchases worldwide. The large capital goods producing countries such as Germany,
Japan and the United States have all been affected.
Since this crisis began there was widespread concern as of today Member States have mobilized
resources on a massive scale, including $18 trillion (almost 30 per cent of world gross product) to
recapitalize banks, nationalize financial institutions and provide guarantees on bank deposits and
other financial assets; and fiscal stimulus plans that by April 2009 amounted to $2.7 trillion, to be
spent over 2009–2011. They have also acknowledged that the financial crisis reflects inadequacies
of current financial architecture, and that there’s a need for deep structural reforms to better
reflect the new conditions and challenges of the 21st century.
In a globalized economy, interventions in financial markets call for cooperation and coordination
of national institutions, and for specialized institutions with a multilateral mandate to oversee
national action. The crisis has made it all too clear that globalization of trade and finance advises
for global cooperation and global regulation. It is indispensable to stabilize exchange rates by
direct and coordinated government intervention, supported by multilateral oversight, instead of
letting the market find the bottom line. But resolving this crisis and avoiding its recurrence has
implications beyond the realm of banking and financial regulation, going to the heart of the
question of how to revive and extend multilateralism in a globalizing world.
References:
Pastorel, Macoveiciuc PhD. (2009). Credit Crunch. Retrieved August 10, 2009 from
http://www.asecib.ase.ro/simpozion/2009/full_papers/pdf/33_Macoveiciuc_Credit%20Crunch_ro
.pdf
Dunaway, Steven (2009). Global Imbalances and the Financial Crisis. Retrieved August 10, 2009
from http://www.cfr.org/content/publications/attachments/Global_Imbalances_CSR44.pdf
te Velde, Dirk Willem (2009). The global financial crisis and developing countries. Retrieved August
10, 2009 from http://www.odi.org.uk/resources/download/2462.pdf
United Nations Department of Economic and Social Affairs (2009). Financial and economic crisis.
Retrieved August 10, 2009 from http://www.un.org/esa/desa/financialcrisis/
UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT (2009). The Global Economic
Crisis: Systemic Failures and Multilateral Remedies. Retrieved August 10, 2009 from
http://www.unctad.org/en/docs/gds20091_en.pdf
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